RBI may wind up, merge banks short of capital

PTI
Friday, 14 April 2017

MUMBAI: Banks with unsound financials face the prospects of a merger or winding up, or even risk their board and management being sacked by the Reserve Bank of India (RBI). These are some of the extreme measures that the central bank has in mind for banks that badly breach the threshold for bad loans and minimum capital requirements.

MUMBAI: Banks with unsound financials face the prospects of a merger or winding up, or even risk their board and management being sacked by the Reserve Bank of India (RBI). These are some of the extreme measures that the central bank has in mind for banks that badly breach the threshold for bad loans and minimum capital requirements.

The RBI on Thursday came out with a revised set of 'prompt corrective action' (PCA) — steps that it will take to get failed banks back on track. While the PCA guidelines have been around since 2002, what the RBI did on Thursday was to reset the trigger points.

According to norms, the RBI gets into action when the capital adequacy falls below a certain level or when bad loans rise beyond a certain point. There are different corrective actions for each milestone.

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